Union Savings Bank & Trust Co. v. Alter (103 Ohio St. 188, 1921)

Robinson, J.

The questions in this cause propounded by the various parties hereto are:

I. Did Franklin Alter die intestate as to that part of his estate which he directed his trustees to ; pay to Henry T. Alter and his heirs at the expiration of ten years. after the decease of testator, Henry T. Alter having died without issue prior to the death of the testator?

II. Did the estate bequeathed to the trustees in' trust for the children of Franklin Alter vest in the children at .the death of Franklin Alter?

III. Has the court the power to increase the annual allowance made by the testator to each of his children, because of the fact that the circumstances of certain of such children and general conditions have changed since the death of testator ?

IV. Are the trustees exceeding their power by the contemplated sale of the stock of the estate in The American Tool Works Company of Ohio?

In view of the conclusion we have reached in considering question No. II, a discussion of question Number I becomes unnecessary, other than to state that the interest of the children, who survived the testator, in the undivided one-eighth part devised and bequeathed to Henry T. Alter, and his heirs, is not different from their interest in the entire estate.

Coming now to a consideration of question No. II, from a reading of thp will it seems apparent that the testator intended to secure to each of his children an annual income for the ten years immediately following his decease, and that such income should not be by them in any way anticipated or alienated; hence the provision “My Trustees shall accept no order on said annual payments from any of my said children, nor shall said annual payments or any part thereof be in any way pledged or hy-pothecated by any of my said children.”

What impelled the testator to make provision for the annual income and to set it about with restrictions as to anticipation and alienation, we need not inquire. It is sufficient that we are able to gather from the plain provisions of the will such intention.

Having thus demonstrated his purpose to prevent the alienation and anticipation of the annual income, and having recognized the advisability of so restricting the enjoyment of this annual income, it is significant that with reference to the principal and the larger bequest, he made no such provision or restriction. It is also significant that with reference to the annual income he provided “In the event of the death of any particular child of mine before or after my death, leaving issue, my Trustees shall pay annually to its issue, share and share alike, but per stirpes, the same amount or portion of the net income of my estate as its parent would have received if living,” fand further provided “In the event of the death of any child * * * leaving no issue * * * the income which would have been or which was theretofore payable to such child * * * shall go in augmentation and become a part of the principal of my estate.” But when he came to the distribution of the principal of the trust estate he disposed of it one-eighth part thereof to- each of his children, by name, “and 'his heirs.” Having with reference to the annual income clearly manifested an intention that such incomes should go to his children and their respective issue, as distinguished from their heirs, and in the absence of issue that it be suspended from its course of descent and be applied towards the augmentation of the prin-' cipal, thus demonstrating that he understood the distinction between issue and heir, he to our minds conclusively indicated that when he used the words- “and his heirs” or the words “and her heirs” he used them in their technical sense. From which we are forced to the conclusion that in the use of the words “one-eighth part thereof to my son, Franklin Alter, and his heirs,” and similar words as to the other children, the testator did not by the use of the words “and his heirs” intend to indicate a new class of persons, but rather intended to indicate a bequest to Franklin Alter, absolute, subject only to the trust, and that therefore the children of the testator who survived him took a vested estate in the entire trust estate, subject to the provisions of the trust as to annuity, control and possession.

We come now to the consideration of question Number III, which, it may be said in passing, is the question that influenced this court to accept jurisdiction of this cause.

While it is not controlling in the determination of the legal question here involved, it seems appropriate to refer to the facts that testator lived some seven years after the execution of his last will and testament; that his income had increased prior to his death, and especially so for the year immediately prior thereto; that George T. Alter, long prior to the death of testator, had developed the disease from which he is now suffering, and that the testator had advanced to him some $35,000 more than he had advanced to any other of the children, which would indicate that he had knowledge of his financial needs and probably of his. earning capacity ; and that notwithstanding such knowledge he required that out of the first annuity of $2,500 to George $2,000 should be retained as part payment upon such advancement. It also seems appropriate to refer to the facts that the son Franklin Alter had married prior to the death of the testator, had two children, and at that time was not earning to exceed $1,500 per year; that for the seven years between the execution of the will and his decease, notwithstanding the changing circumstances of his children and the increase of his estate, the testator did not see fit to revise his bequest to any of them.

Assuming, as we are bound to assume, that the will speaks from the date of the death of the testator, rather than from the date of the execution of the will, the circumstances of these two legatees,_ then and now, the conditions under which they lived then and live now, are not greatly different; perhaps not more' different than are the circumstances and conditions of a considerable proportion of legatees in general, whose right of possession and control is deferred.

If the courts are to enter the field of distributing estates in such manner as will in their judgment accomplish the most beneficial results to the legatees, and are to distribute the bounties of the testator according to the needs of the beneficiary arid the sense of equity and justice of the court, rather than according to the intention of the testator, to what purpose is the right conferred by statute upon every person of full ag6, sound mind and memory, and not under restraint, to give, and bequeath his property by last will and testament ?

A testator when he comes to distribute his bounty by. last, will and testament takes into consideration his affection for and obligation to the beneficiary, the beneficiary’s needs, ability, capacity, and many other things of which he has peculiar knowledge, and it is because of such consideration that he makes a last will and testament at all.

Is a court, a stranger to the controlling motive of the testator, to assume to amend the will, because in its opinion some other disposition would have been more beneficial to the legatee ? Where no last will and testament is executed, the law casts the estate upon the heirs and distributees without reference to their circumstances or needs, and without reference to the affection or obligation of the ancestor, and no court is permitted to divert the course of the estate’s descent. -

The right to pass property by will having been conferred by statute, and the right to inherit intestate property having been conferred by statute, what argument can be advanced in favor of thwarting the will of the testator in favor of the needy legatee that cannot with equal force be urged with reference to the needy heir under the laws of descent and distribution?

In extreme cases, in England, as well as in certain jurisdictions in America, the courts, under the guise of doing, what the court imagines the testator would have done had. he foreseen the situation, have gone a long way toward the substitution of the will of the court for that of the testator; but no such invasion .of the right of the testator has been made in Ohio and we are not convinced that the benefits to be derived from the assumption and exercise of such power by the courts would compensate for the evils which would necessarily flow in. its wake.

The remaining question for determination is as to the power of the trustees to sell the stock of the estate in The American Tool Works Company.

The testator directed “that my Trustees shall sell and dispose of my stock in The American Tool Works Company of Cincinnati, Ohio, within one year after my death, unless my Trustees shall unanimously agree that it would be for the best interest of my estate to hold said stock and continue my interest in said The American Tool Works Company, for a period of three years after my death, then in that event, I direct that said stock be sold and disposed of at the end of the last mentioned period; when said stock is so solid the proceeds derived therefrom' shall be reinvested by my Trustees as part of the principal of my estate.”

The agreed statement of facts states that “The stock in the American Tool Works Company, referred to in said will, was the stock issued- by The American Tool Works Company, a corporation organized and doing business under the laws of the State of West Virginia, * * * that * * * about October 29th, 1918, a corporation was organized under the laws of the State of Ohio and immediately after organization of said corporation * * * The American Tool Works Company * * * of the State of West Virginia * * * did execute a deed, bill of sale, and other written instruments, transferring, selling, assigning, and conveying to The American Tool Works Company, a corporation under the laws of Ohio, the entire plant, assets and property, real, personal and mixed, * * * belonging to the said The American Tool Works Company of West Virginia, the consideration therefor being the payment to Edgar Stark * * * of the sum of Thirty Thousand ($30,000) Dollars, in cash, The American Tool Works Company, a corporation under the laws of the State of Ohio, assuming and agreeing to pay as and when the same became due any and all lawful claims and indebtedness of , said The American Tool Works Company, of West Virginia, and the issuing and delivering to- him of one or more valid and paid up stock certificates in such name and number of shares as the said Stark directed, representing in the aggregate the'sum of two hundred and sixty-five thousand ($265,000) dollars, par value of the capital stock of The American Tool Works Company, a corporation under the laws of the State of Ohio; that by said sale the trustees of the estate of deceased * * * had issued to them shares of stock in The American Tool Works Company, a corporation under the laws of the State of Ohio, and still hold the same.” This transaction, stripped of its formality, amounted to a mere change of the company from a West Virginia corporation to an Ohio corporation, the Ohio corporation having the same assets which were theretofore held by the West Virginia corporation, and the trustees having the stpck in the Ohio corporation in place of the stock of the West Virginia corporation, which presumably is a dissolved and now extinct corporation.

It is claimed that this transaction amounted to a sale in compliance with the direction of the will.

However, assuming this to have been a sale and reinvestment in the stock of the Ohio corporation, we are unable to agree with this contention, for the reason, if for no other, that it was not authorized by the’ will, which directs the trustees to reinvest “in the stock of any National Bank in any State of the United States, but not more than Ten Thousand Dollars ($10,000) par value in the stock of any one such bank; in first mortgage on unincumbered real estate in any State of the United States, provided, that the amount loaned be not more than sixty per cent, of the market value of the real estate together with valid insurance on the improvements, if any; in bonds of the United States Government and in approved state, county, township or municipal bonds; in the purchase of real estate or in what are known as ground rents in any city of the United States having a population of over fifty thousand inhabitants, or in and upon any securities in which said The Union Savings Bank and Trust Company is authorized to invest trust funds by law.”

Clearly the reinvestment, if this transaction be treated as. a sale and reinvestment, was not a reinvestment in any of the securities contemplated in the above authorization of the trustees in that respect. /

Nor are we of opinion that the failure of the trustees to sell the stock within the period directed by the will exhausted their power with reference thereto, or that their failure to make such sale within the time directed would be any defense to an action now brought tb require them to make such sale, but are of opinion, since the equitable estate of the children of Franklin Alter in the residue of the estate devised to the trustees vested upon the death of the testator, subject to the provisions of the trust, that the consent of such children to the reorganization or their consent to the' retention of the stock by the trustees would operate as an estoppel against any cause of action which they might have had by reason of the failure of the trustees to make such sale.

The testator having vested the trustees with the broad power and discretion “to sell and convey any of the property, real, personal or mixed, which may be the subject of this trust within said period of ten years from the date of my death,” this court, in the absence of a showing of fraud, collusion or bad faith, will not substitute its judgment for the judgment of the trustees selected by the testator, and will not in the absence of proof of fraud, collusion or bad faith enjoin the exercise of the power so invested in the trustees by the testator.

The judgment of the court of appeals in Case No. 16835 is reversed in so far as it requires the trustees to pay to any of the children of the testator an annuity in excess of $2,500, and the judgment of the court of appeals in Case No. 16836 is affirmed.

Judgment reversed in Cause No. 16835.

Judgment affirmed in Cause No. 16836.

Hough, Wanamaker, Jones and Matthias, JJ., concur.

Marshall, C. J.,

dissenting. I dissent from the majority opinion of the court upon the conclusions reached upon the third question therein propounded, to-wit:

“Has the court the power to increase the annual allowance made by the testator to each of his children, because of the fact that the circumstances of certain of such children and general conditions hav-e changed since the death of testator?”

While I disagree with the conclusion of the majority on this question, I heartily agree with the court’s conclusion upon the second question propounded, to-wit: That the estate vested in each and all of the children at the death of the testator.

The lower courts have found the existence of an unforeseen exigency, and this seems to be admitted in the briefs of counsel for the trustees. This court under the established rules should take this fact as established, and not weigh the evidence to determine the acuteness of the needs of the applicants. Taking this finding of fact in connection with the conclusion that the estate did vest at the death of the testator, it is unsound, illogical and inequitable to deny the application of the beneficiaries for an increased allowance.

By reference to the will, it will be found that the first five items of the will make provision for the widow and for certain other minor legacies, and that the bulk of the estate is disposed of in item six of the will. In this item it will be found* that certain restrictions were made upon expenditure of the income during the period of ten years immediately following the death of the testator; but that at the end of the ten-year period there was to be complete distribution among the children, and this distribution was not in any sense contingent.

Each of the seven surviving children became the legal owner of the undivided one-seventh of the corpus of the estate at. the death of the testator, although possession was .to be withheld for the period of ten years. This conclusion is emphasized by the requirement in item six that an appraisement of all property be made immediately after the death of the testator and that the valuations of that date' fixed by the appraisers should be the basis of distribution in kind, though the actual distribution should take place ten years later.

Item six forbids the trustees from recognizing any alienation of income, and does not permit the trustees to recognize any .orders anticipating allowances made to each of his children respectively; but no such limitation, and no restriction whatever, was placed upon alienation of the respective interests of the children in the corpus of the estate.

Having exercised peculiar care to prevent the children from anticipating the yearly allowances, and having placed no limitation upon alienation of their interests in the corpus, and both provisions having been contained in the same item of the will, it will be presumed that it was the deliberate design of the testator to leave the corpus untrammeled against alienation, and subject to execution to satisfy the claims of creditors of the beneficiaries.

The record in this case leaves no doubt upon the following propositions of law and fact:

1. The estate vested in the children upon the death of the testator.

2. An unforeseen exigency has arisen since the death of the testator. This is admitted in the brief filed by counsel for the trustees.

3. The application for an increased allowance does not seek an enlargement of the quantum of the interest of any of the beneficiaries.

4. The granting of the application and the making of an increased allowance to any beneficiary would not affect the right of any other beneficiary under the will.

5. It would not change the course of the descent nor would it affect final distribution of the estate.

6. The $6,000 annual allowance was at the time the court of appeals made its order by no means as large a percentage of the income due each beneficiary as $2,500 was at the time of the execution of the will.

7. The order of the court of appeals now being reversed by this court itself provided that it should be subject to modification upon changed conditions.

8. ' The will made provision against'alienation of income, but gave a vested interest in the corpus, thereby making it clearly subject to alienation, and also making it subject to execution and sale at suit of creditors of the beneficiaries.

Taking the foregoing statements as the basis of discussion, it is impossible to justify the conclusions reached in the majority opinion. It is stated in the majority opinion that it is presumed that the testator in distributing his bounty by last will and testament takes into -consideration his affection for and obligation to the beneficiaries — the beneficiaries’ needs, ability, capacity, and other things of which he has peculiar knowledge; and that because of such considerations he makes his last will and testament.

Again, in the court’s opinion, the inquiry is made as to whether a court may amend a will because in its opinion some other disposition would have been more beneficial to the legatee. Again, the question is propounded as to what argument can be advanced in favor of the thwarting of the will of the testator in favor of the needy legatee that cannot with equal force be urged with reference to the needy heir under the law of descent and distribution.

Each and all of these statements of the court make it evident that its conclusion was reached under the mistaken notion that it is sought to change the will of Franklin Alter. The order made by the court of appeals in this case did not make any change in the will. The court of appeals reached the same conclusion as this court upon the proposition that the estate was given absolutely to the children, and that their respective interests vested at the death of the testator, and that the provisions of the will forbidding anticipation and alienation applied only to the income..

The will clearly provided that each’of the children should be guaranteed an annual income of $2,500, and every precaution was taken to safeguard such income for the full period of ten years. It further provided that all income in excess of such annual payments to the beneficiaries should augment the principal of the estate and thereby become a part of the vested interest of the beneficiaries. It is now sought to relieve the distress of the beneficiaries, which distress has had- its inception since the death of the testator, and which was not known to the testator, and which could not reasonably have been foreseen, by ordering the trustees to pay to certain of the beneficiaries certain .additional sums of money during such time as the estate shall continue to earn sums largely in excess of the earnings at the time of the testator’s death.

The record discloses that at the time of the execution of the will the annual earnings of the estate were approximately the amount ordered to be paid annually in the aggregate to the beneficiaries. It further appears that in the year 19,17 the net annual earnings were approximately ten times that amount. The additional payments could therefore be made not only without impairing the principal, but' even without seriously affecting the income. Since it is admitted by this court that the interest of the beneficiaries vested, it can upon no theory justify its declarations that the order of the court of appeals amounts to an amendment of the will, or that it is a change in the manner of the final distribution of the estate.

The méárüng and purpose of the will of Franklin Alter must be-gathered from a reading of all its provisions, and not merely from a consideration of one clause of item 6. It is true that in item 6 certain restrictions were placed upon distribution of income, but the purpose of the testator is equally clear that the principal was not to be disturbed or permitted to be sold or dissipated, during the ten-yearperiod, otherwise no means would be available for producing the necessary revenue to pay the $2,500 annuities. It is important to conserve the corpus of the estate in order to carry out the purposes of the testator, and if, as found by the majority opinion, the corpus is vested, and therefore subject to sale or alienation, the entire purpose and plan of the testator is in danger of being defeated unless equity comes .to the rescue.

By placing limitations upon the payments to the beneficiaries, whereby such payments have proved insufficient to provide the necessities of life, and at the same time having left the principal to them in such' manner as to vest at the testator’s death, thereby placing them at the mercy of their creditors, the court of equity is at the parting of the ways, and must either give the beneficiaries an additional portion of the increased income or stand by impotently and see the principal dissipated by an execution sale. The increased income which is in excess of the stipulated annuities is each year added to the vested principal and such excess therefore becomes subject to sale. May a court of equity not order the payment to be made out of such excess' when it is admitted that a court of law may render judgment and order an execution upon the entire principal including that portion thus added?

The majority opinion states:

“In extreme cases, in England, as well as in certain jurisdictions in America, the courts, under the guise of doing what the court imagines the testator would have done had he foreseen the situation, have gone a long way toward the substitution of the will of the court for that of the testator; but no such invasion of the rig'ht of the testator has been made in Ohio.” .

Concerning this statement I have two observations to make:

1st. That in none of the cases cited and discussed by counsel for the beneficiaries has the will of the court been substituted for that of the testator. In each and all of those cases, the will of the testator was carefully observed. The orders made by the courts in those cases were in furtherance of the real intent of the testator as expressed in his will, and were made to prevent the intention of the testator from being frustrated and to prevent the purposes of the trust from being defeated.

2d. The above-quoted statement contains an absolutely erroneous conception of the principles of’ equity. In each and all of the cases under discussion the courts proceeded under jurisdiction of equity, and strictly along well-recognized equitable principles. It is absurd to say that the principles .of equity in Ohio are different from the established principles of equity in other states of the Union,- or even in England.

Equitable principles are not based upon the whim of the chancellor, in which each case may be decided according to the views of the individual judge; neither are they to be influenced by his conscience or governed by his interpretation of good morals. On the contrary, equity is a separate system of jurisprudence, having fixed precedents and principles, and when such precedents and principles have become uniformly established in .certain states and jurisdictions it is exceedingly unfortunate for a court of one state, which has not yet passed upon such principles, to choose to stand apart and treat such principles and precedents as the product of a foreign jurisdiction, entitled to no respect.

It is well recognized, and cannot be seriously.disputed, that equity has peculiar jurisdiction over trusts. A trustee without the aid of equity must follow the strict letter of the instrument whereby the trust is created; but it frequently happens that it is either impossible or grossly inequitable to thus strictly follow it, and in such event recourse may be had to equity to grant relief. It is not the purpose of such relief to entirely change the purposes of the trust, but to carry out their spirit and general purpose. If a court of equity does not have such power, then it may be inquired what possible power equity has over trusts.

To what purpose are trust estates placed, under the jurisdiction and control of courts of chancery if an unyielding enforcement of the strict letter of the trust is to be the rule, and the spirit of the trust is to receive no consideration in the light of new exigencies which have arisen and which could not reasonably have been foreseen ? If a strict administration and a rigid adherence to the letter rather than to the spirit of the trust is to be the invariable rule in trusteeships, then the entire subject should be remanded to courts of law.'

Equitable estates and equitable interests have their origin in trusts. It is only in trusteeships that there is any division between the legal and equitable estates, and it is only in courts of equity that such equitable interests can be recognized and enforced.

It is unfortunate indeed if it is to become a settled law of Ohio that tnist estates are to be administered according to their strict letter, and no deviation is to be permitted even in cases where it is admitted that exigencies have arisen which are likely to be destructive of the very existence of the trust. This is not painting it too strongly in the instant case. Having declared that the interest of each of the beneficiaries has become vested upon the death of the testator, and it appearing that thé beneficiaries have become involved in debt through misfortunes, nothing can prevent creditors from subjecting the vested equitable interest of the beneficiaries in the corpus of this estate to execution and sale to satisfy their claims. True, possession under any such sale could only be given at the end of the ten-year period. This would mean that the' interest of such beneficiary would be sold at a great sacrifice.

On the other hand, we will suppose that the beneficiaries, desiring to prevent a sacrifice sale upon execution, shall decide to sell their interests in the corpus of the estate, possession^ be given at the end of the ten-year period. The decision of this court throws such a cloud upon the title that such a sale could only be made at a great sacrifice.

The testator has already declared that the trust was for the benefit and advantage, of the beneficiaries, all of whom are his own flesh and blood, and it is inconceivable that the testator meant that the corpus of the estate should be sacrificed by adhering to the strict letter of the trust rather than yielding an additional portion of the income to the needy beneficiaries, thereby causing a sacrificial sale of a portion or all of the corpus rather than saving to them an unimpaired principal at the end of the trust period.

Courts in other jurisdictions have looked to the general scheme of the testator, and have executed the trust in such manner as to carry out his intention, as gathered from the entire instrument.

These beneficiaries are the children of the testator, and have all been, treated exactly alike, and have been given the entire estate, subject to no contingencies whatever, only deferring its full enjoyment for a period of ten years.

Can it therefore be said that his intention, gathered from the entire scope of item 6 of the will, was that he preferred to have the principal of the estate sacrificed at the suit of creditors rather than to yield a small portion of the extra income, when such extra income in some years was from five to ten times as much as it was at the time the testator made his will?-

Johnson, J., concurs in dissenting opinion.